Tenant fees ban to cost between £77m and £274m

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It has now been announced that the Tenants’ Fees Bill is now formally starting its progress through Parliament and is due to be implement in Spring 2019.

An impact assessment of this ban on charging tenants fees has estimated it will cost letting agents between £77 and £274 million in the first year and lead to job losses in the industry. Click here to see the full impact assessment.

Along with Section 24 mortgage interest relief restrictions the government find it politically advantages to tell the electorate that this will cost landlords more without ever admitting it will increase rental costs for tenants.

David Smith, RLA policy director commented: “Rather than pressing ahead with plans for more legislation in the sector that will take time to be considered by Parliament and enacted, ministers could achieve a greater and earlier impact by using the powers they already have to improve the transparency of fees charged by agents.

“With warnings that the policy could lead to rent rises, there is a very real danger that whilst the cutting the upfront cost of renting, tenants will find themselves paying them through higher rents on a permanent basis.

“Instead of using scarce Parliamentary time to make changes to letting fees much of which could be done by regulation and better enforcement, the Government could do more to reform the deposit system to deal with the need for most tenants to fund two deposits, one for the property they are leaving and one for the property they are going too. This cost is much higher and a much more substantial barrier to tenant mobility than agency fees.”

David Cox, chief executive of ARLA Propertymark, said: “We do not believe the Bill will achieve its aims, as our own research last year demonstrated that tenants will end up worse off and banning fees will not result in a more affordable private rented sector.

“ARLA Propertymark has worked hard over the last 18 months to explain the unintended consequences of the ban to government, and we’re pleased they have listened and allowed Change of Sharer, Surrender of Tenancy, holding deposits, exempted the Green Deal Charge, and capped security deposits at six weeks, rather than the MHCLG Select committee’s proposed five week cap. Now that we have greater clarity on what the ban will entail, agents must start preparing for when it comes into force.”

They expect letting agents to charge landlords extra 50% yet S24 they will not admit rents will rise. Is that because its seen as acceptable to increase landlord costs but they can't dare admit to increasing rents

Having read the impact assessment (what a 24-hours that was!), the arguments for the policy seem convincing: tenants are being ripped off by unscrupulous agents.

The impact assessment however appears to be numerically flawed and somewhat naive.

It does acknowledge that rents will rise to allow landlords to recover costs. But it says that a significant proportion of tenants would rather have the certainty of a higher rent than the uncertainty of undisclosed charges.

It is naive in assuming that LL who do not use an agent, and thereby have lower costs, will pull down the rents that LL taking on more costs will charge; it is more likely that those LL will raise their rent to near the levels of the unfortunate LLs to take advantage of the "market price".

It is interesting that the impact assessment expects LLs to bear the costs of the deposit cap when the deposit is insufficient to cover the cost of tenants breach of tenancy conditions.

Nowhere does it address the issue of higher rents affecting the ability of HB claimants to obtain a tenancy in the PRS; instead it claims that the burden on LA housing obligations will be reduced!

It is unclear from the document if it is expected that the Act will allow LLs to reclaim from tenants such things as:
* interest on overdue rent;
* costs associated with chasing tenants for breach of agreement;
* costs associated with pursuing S21 and S8 notices if tenant does not vacate when requested

It also seems to suggest that LL cannot make T responsible for paying for a TV license.

Reply to the comment left by KATHY MILLER at 03/05/2018 - 09:04"They expect letting agents to charge landlords extra 50%"
That is not quite what it says.
It suggests that, on average, only 50% of the charges currently made by LAs to Ts will be passed on to LLs. It expects that those LAs making unreasonably high charges to Ts will reduce them or go out of business as LLs shop around.
So, it is expected that those making reasonable T charges will pass them on in full to LLs.

Couple of points from a Scottish Landlord and Letting Agent, firstly ARLA should have fought the ban when it was introduced in Scotland but instead Letting Agents had to scramble together to form their own opposition and when the ban was introduced ARLA didn't even mention it on the news section of their website. Secondly the figure for expected rent increases as a result of this ban has been massively understated by ARlA. If they studied the data available from Citylets for Scotland (Edinburgh in particular) they would see that there was a large spike in rents in the year after the ban was introduced. This was because tenants had more money in their pockets and were competing for the same properties so rents rose. I expect the rent rises to be 10X the ARLA figure.

This is as usual a crazy piece of legislation using a sledgehammer to crack a nut. We all know the most abused area of admin fees is in London so why not just limited what can be charged.

I have always felt that charging more than £250 per household is not acceptable along with charging again for renewal of a tenancy. As a landlord you are delighted if a tenant wants to stay. If you agree a modest rise in the rent in advance then everyone is happy.

With regard to tenants fees the agents can’t afford to lose all their fees so yes they are going to be passed on to landlords who in light of all the other recent legislation have no choice but to pass on the cost but how? Rent rises?

I think landlords could use some imagination and do either.

1. Increase the first months rent by the cost of the admin fee
2. Charge the tenant an insurance contribution equal to the fee
3. Increase the rent and spread over 6 months.

1. Increase the first months rent by the cost of the admin fee
2. Charge the tenant an insurance contribution equal to the fee
3. Increase the rent and spread over 6 months.

I think none of those are going to be options (from my memory of the bill).
1. A period with a higher rent will be considered to be imposing a tenant charge.
2. Is clearly a tenant charge.
3. Same as 1 (with the possible exception of a new agreement with a 'negotiated' rent less than than the initial rent).

LLs need to recover costs over the fixed term of the tenancy because they do not know how long tenants will stay.

Options I can see are:
A. no rent increases for years (but many do that anyway).
B. no claims from deposit for long term tenants for 'little' things which normally would be charged.

But why bother?
There will be no way that a LL can make any such offer up front without falling foul of the rules, and it is your prospective tenants you want to impress, not your ex-tenants.

The impact assessment fails to differentiate between types of tenants.
There will be winners and losers of this fee ban.
The winners will be the richer rent generation who tend to move frequently. (And incidentally, those screaming loudest.)
The losers will be the poorest families at the bottom end of the market who tend stay in one place.
E.g Move 10 times save 10x £250 fees = £2500 - £1200 (tenner a month pass through rent increase over 10 years)
Move once, save 1x £250 fee = £250 - £1200 (tenner a month pass through rent increase over 10 years)
So the rent generationer will be over a grand better off.
Paid for by the family on minimum wage who will be a grand worse off.
Kerching! Double Lattes and avocados all round.
N.B don't agree with rip-off fees but this is the wrong way to go about tackling them.

Before I became a landlord and back in the days when I was renting myself, I never once paid a letting agent a fee. It seemed to work back then.
I think that agents have just become richer for doing the same amount of work.

Reply to the comment left by H B at 10/05/2018 - 00:171. Letting agents commission fees used to be higher, 15% was commonplace. Then the financial crash happened and the large estate agent chains started letting properties as a sideline, undercutting traditional letting agents to get the business and loading it onto tenants instead.

2. It didn't used to be as important not to select a perfect tenant. It was a lot easier to evict a non payer. Section 21 has been considerably dumbed down. I even once managed to evict a non paying tenant using section 8. Ah, the good old days!

3. Letting agents (and landlords) are doing a lot more work due to increased legislation, cp12's, EPC, HMO's, RTR, deposit protection etc etc
- it all comes at a cost.

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